income approach

(noun)

GDP based on the income approach is calculated by adding up the factor incomes to the factors of production in the society.

Related Terms

Examples of income approach in the following topics:

  • Other Approaches to Calculating GDP

    • The income approach evaluates GDP from the perspective of the final income to economic participants.
    • It can be measured a few different ways and the most commonly used metric is the expenditure approach; however, the second most commonly used measure is the income approach.
    • The income approach unlike the expenditure approach, which sums the spending on final goods and services across economic agents (consumers, businesses and the government), evaluates GDP from the perspective of the final income to economic participants.
    • The sum of COE, GOS, and GMI is called total factor income; it is the income of all of the factors of production in society.
    • By definition, the income approach to calculating GDP should be equatable to the expenditure approach (Y = C + I+ G + (X - M)).

  • Defining GDP

    • The income approach and the expenditure approach highlighted below should yield the same final GDP number .
    • The expenditure approach attempts to calculate GDP by evaluating the sum of all final good and services purchased in an economy.
    • The income approach looks at the final income in the country, these include the following categories taken from the U.S.
    • "National Income and Expenditure Accounts": wages, salaries, and supplementary labor income; corporate profits interest and miscellaneous investment income; farmers' income; and income from non-farm unincorporated businesses.
    • The income approach, alternatively, would focus on the income made by households as one of its components to derive GDP.

  • Calculating GDP

    • GDP can be calculated through the expenditures, income, or output approach.
    • There are a few methods used for calculating GDP, the most commonly presented are the expenditure and the income approach.
    • Both of these methods calculate GDP by evaluating the final stage of sales (expenditure) or income (income).
    • The most well known approach to calculating GDP, the expenditures approach is characterized by the following formula:
    • The income approach adds up the factor incomes to the factors of production in the society.

  • Learning from GDP

    • GDP can be evaluated by using an output approach, income approach, or expenditure approach.
    • The output approach focuses on finding the total output of a nation by directly finding the total value of all goods and services a nation produces.
    • The income approach equates the total output of a nation to the total factor income received by residents or citizens of the nation.
    • The main types of factor income are:
    • The expenditure approach is basically an output accounting method.

  • National Income

    • A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted national income (NNI* adjusted for natural resource depletion).
    • The output approach focuses on finding the total output of a nation by directly finding the total value of all goods and services a nation produces:
    • The income approach equates the total output of a nation to the total factor income received by residents or citizens of the nation:
    • The expenditure approach focuses on finding the total output of a nation by finding the total amount of money spent and is the most commonly used equational form:
    • The expenditure approach is a common method for evaluating the value of an economy at a given point in time.

  • Defining and Measuring Economic Mobility

    • Economic mobility can be perceived via a number of approaches, but is best summarized in the following four:
    • Contrary to concepts of mobility in America, 42% of individuals in born into the bottom income bracket remain there.
    • An interesting chart, measuring intergenerational income elasticity, can be found in .
    • Put simply, it answers the following question: How likely is a person to exceed their parents income at a given age?
    • Approaching this social tie with income inequity has taken a great deal of political reform over the years, and has much left to accomplish in terms of enabling movement across economic levels.This could in many ways be coupled with immigration, or the concept of being different socially or ethnically from a group that has historically achieved high income levels.

  • Calculating Economic Growth

    • There are three approaches used to determine the GDP:
    • In principle, all of the approaches should yield the same result for the GDP of a country.
    • For example, the equation for the expenditure approach is: GDP = C + I + G + (X - M).
    • For economic purposes, the economic growth is calculated and compared to the population, also know as per capita income (indicator of a country's standard of living).
    • When the per capita income increases it is called intensive growth.

  • Introduction to Demand and Consumer Behavior

    • In Neoclassical microeconomics, the objective of the consumer is to maximize the utility that can be derive given their preferences, income, the prices of related goods and the price of the good for which the demand function is derived.
    • There are two approaches that may be used to explain an individual's demand function; utility analysis and indifference analysis.
    • The two approaches are compatible.

  • Defining and Measuring Income Inequality

    • As a result, a wide array of income inequality scales and metrics have been generated in order to identify challenges.
    • In pursuing an objective and comparable lens in which to measure income inequality, a variety of methods have been created.
    • Gini Index: One of the most commonly used income inequality metric is the Gini Index, which uses a straightforward 0-1 scale to illustrate deviance from perfect equality of income.
    • Theil Index:The Theil Index takes a slightly different approach than the rest, identifying entropy within the system.
    • When there is perfect equality, maximum entropy occurs because earners cannot be distinguished by their incomes.

  • Disposable Income

    • Disposable income is thus total personal income minus personal current taxes .
    • Discretionary income is disposable income minus all payments that are necessary to meet current bills.
    • Discretionary income = Gross income - taxes - all compelled payments (bills)
    • Disposable income is often incorrectly used to denote discretionary income.
    • It is whatever income is left after taxes.